In real life, if you do not know how to take care of your money then you will quickly go into debt and not have anything for your twilight years. Budgeting and money management are a major part of modern life and any individual who does not learn this usually ends up with a lot of grief.
However, money management is also highly relevant on the foreign currency exchange. Without money management, it does not matter how much you win or how often you win because you will never be able to keep what you have won. Therefore, if you are about to make a foray onto the foreign exchange then you have to ensure that you have understood the money management rules completely.
Be Realistic about Your Targets
The more unrealistic your targets are, the more difficult it will be for you to implement money management techniques while you trade on the foreign currency exchange.
Therefore, the first rule of money management is for you to have realistic expectations from your efforts in the market. Study how much it is possible to gain from the market in a month, how account sizes affect profits, and how much beginners usually get, and then set targets.
Use Stop Loss Orders on Every Move
On the foreign currency exchange, you should always be prepared to incur losses. The reason for this is that losses are inevitable in the forex market. Even the best forex traders have to cope with losses.
The best way to cope with potential losses in the forex market is to use stop loss orders on each and every trade. Stop loss orders would help you keep losses to a minimum and prevent heavy damages.
Never Rely on Probability over Skill
Many new traders believe that they can rely on probability to make profits wherein they think that the more they trade the better their net profits. However, while this method may yield wins, at the end of the day the money in their accounts either dwindles or remains the same.
The best way to trade on the foreign currency exchange is to rely on your chosen strategies and your skill at implementing them in the market within a solid trading plan.
Protect Your Profits Diligently
Profits are not easy to get on the foreign currency exchange, which is why you have to proactively protect them. This means two things. One is that you use trailing stops while your profits are still unrealized, and secondly that you withdraw your profits from your account at regular intervals.
Test Your Strategy and Have Faith in It
Unless you trust your strategy, you cannot hope to make any money on the foreign currency exchange because you will always be second guessing its effectiveness. In order to gain confidence in your strategy, you should back and forward test your strategy until you have made sure that the strategy works and is, in fact, profitable over an extended period of time.
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